Rupert Murdoch has confirmed he is to split News Corporation, the $54bn global media company he has built over 60 years, into two separate publicly listed companies – newspapers, book publishing and education; and media and entertainment.
Murdoch, chairman and chief executive of News Corp, will be chairman of both companies, but has not said he will hold an executive role in the newspaper business, which he has built up since taking over as proprietor of the Adelaide News in 1953. No announcement was made when News Corp confirmed the split on Thursday about who would head the publishing company.
He will be president and chief executive of the media and entertainment business, which will encompass the 20th Century Fox film and TV studio, Fox network, cable channels including Fox News, and satellite TV assets including the 39.1% stake in BSkyB.
As expected the publishing company will include News International‘s UK newspapers, the Sun, the Times and the Sunday Times, along with the Wall Street Journal, the New York Post, Dow Jones news and financial information service, the Australian, HarperCollins book publishing operation, and News Corp’s fledgling digital education business.
The restructure is expected to take 12 months and over the “next several months the company will assemble management teams and boards of directors of both businesses”.
In an email to News Corp’s global staff of about 50,000, Murdoch said: “Our publishing businesses are greatly undervalued by the sceptics. Through this transformation we will unleash their real potential, and be able to better articulate the true value they hold for shareholders.
“Our aim is to create the most ambitious, well-capitalised and highly motivated publishing company in the world, consisting of the largest collection of our news and publishing brands, as well as our groundbreaking digital education group; we will also work to create the world’s top media and entertainment company, encompassing our premier broadcast and cable networks, leading film and television production studios and highly successful pay-TV businesses.”
Chase Carey, News Corp deputy chairman, president and chief operating officer and Murdoch’s number two is widely credited as a leading advocate of the plan to split company.
Carey, who comes from a TV management background, will be president and COO of the media and entertainment company.
The company said it had decided to restructure because of the “increasingly complex” asset portfolio.
“News Corporation’s 60-year heritage of developing world-class media brands has resulted in a large and unparalleled portfolio of diversified assets. We recognise that over the years, News Corporation’s broad collection of assets has become increasingly complex. We determined that creating this new structure would simplify operations and greater align strategic priorities.”
News Corp’s existing shareholders will receive one share of stock in the new company equivalent to the number of shares they hold now. Both companies will retain a two tier share structure of voting and non-voting shares.
That means that Murdoch and his family trust will control about 40% of the votes in both the larger Fox entertainment company and the smaller newspaper and book publishing unit.
News Corp said the split would add value for shareholders with an “unparalleled portfolio of assets” across both companies. “Shareholders would hold interests in a world class publishing company, consisting of the largest collection of best-in-class publishing assets and a new digital education group and an unmatched global media and entertainment group.”
News Corp’s TV and film business generated revenues of $23.5 bn (£15bn) in the year to June 2011, dwarfing the publishing business’s $8.8bn (£5.6bn).
Publishing, including integrated marketing services, accounts for about 7% of News Corp’s enterprise value, according to analysts at Barclays Capital. It estimates that publishing represents 24% of revenues and around 11% of operating income.
The publishing side is expected to be much smaller, with some US analysts valuing the publishing business at about $5bn, compared with the current market capitalisation of News Corp as a whole of about $54bn.
Tom Mockridge, the News International chief executive, told the publisher’s London-based journalists in an email that their future “is now as part of the largest newspaper and digital group in the world – with more than 170 titles and some hugely respected and prestigious brands”.
“In the UK it means joining forces with HarperCollins, recently awarded publisher of the year and with a heritage going back nearly 200 years. They published Dickens back then and their current list is an eclectic mix that captures Stephen Fry, Tony Parsons, Sophie Dahl and the Dalai Lama,” Mockridge said.
“These are challenging times for our sector but we have proved ourselves time and again to be market leaders and pioneers in our field. I see a bright future, though the pressure to ensure our journalism is compelling and our business practices and procedures robust will be greater than ever.”
Mockridge sought to reassure News International staff about their future, after a difficult year when morale has been hit by the closure of the News of the World and the arrest of more than 20 current and former journalists and executives over alleged phone hacking and illegal payments to public officials.
The splitting of News Corp is a symbolic turning point for the 81-year-old baron who built one of the world’s biggest media empires on the foundation of a single Australian newspaper, the Adelaide News, which he inherited from his father.
News Corp is ranked as the world’s second biggest media and entertainment firm after Disney, which has a market capitalisation of about $86bn, and significantly ahead of Time Warner at $35bn.
New York analyst Laura Martin of Needham & Co said earlier this week in a research note that the restructuring could add $5 to shares for investors in the entertainment side of the business.
Industry analysts say the faster-growing TV side would be valued more highly by new investors not willing to buy shares in a company burdened by newspapers, an industry facing structural decline.
Three banks have been hired to advise on the restructuring with the possibliity of a fourth bank involved, Murdoch’s long time adviser Allen & Co. Goldman Sachs, JP Morgan Chase and Centerview Partners have been hired to advise the media conglomerate, a person familiar with the matter told Fox News.
A question remains, however, about which of the two new companies would bear the financial risks of the ongoing fallout from the News of the World phone-hacking scandal, which has already cost News Corp more than £100m.
Besides legal costs, News Corp also faces a potential investigation and fines in the US under the Foreign Corrupt Practices Act, which punishes companies that have bribed officials abroad.
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